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This book contends that structural reforms, the essential third arrow in Abe's 'Abenomics', will not happen. As a result, Abenomics is merely a combination of reckless monetary policy and ambiguous fiscal policies which will fail to regenerate Japan's fragile economy and cut sovereign debt.




‘Japan Inc.’ was a term used by the Western business community in the 1980s to describe the intimate ties between Japanese industry and the country’s Ministry of International Trade and Industry or MITI (known since 2001 as the Ministry of Economy, Trade and Industry or METI). This relationship, as well as the relationship between the Ministry of Finance (MOF) and the finance sector, was commonly perceived to be the key factor in the resuscitation of Japan’s industrial complex directly after the war, for its rapid economic growth by 1972 and subsequent success in global markets by the late 1970s. On the other hand, it was also viewed as a system which perpetuated mercantile policies, unfair trade practices and institutional corruption. What was not understood at the time was that the elements in Japan Inc. together with the abiding support from the Japanese electorate promoted the rigidity of an archaic and inward system of government administration.
Susan Carpenter

1. Back to Basics?

Prime Minister Nobusuke Kishi (1957–60) is credited with being the father of the LDP and, also, the king-pin of the 1955 political system that was based on the collaboration between politicians, businessmen and bureaucrats and banked with huge sums from the private sector. The LDP controlled the National Diet for thirty-eight years until 1993 and from 1996–2009. Abe’s LDP roots and his right-wing political ideology are inherited from his grandfather, the late Prime Minister Nobusuke Kishi, whom he extols in his book Toward a Beautiful Country, published shortly after he entered the executive office in 2006. Now that the LDP once again holds the majority of seats in the National Diet, it is likely that the ‘1955 political system’ will continue. With the exception of a three-year break, from 1993–6, and a five-year break, from 2009–13, the LDP has dominated Japanese politics since 1955, hence the term ‘1955 political system’.
Susan Carpenter

2. The Sign of the Times: Japan Inc. (1955–1974)

MITI’s long-term industrial policies concentrated on the development of the heavy industries, namely the petrochemical industry and other energy-intensive industries such as aluminum and plastics. Between 1955 and 1973, Japan’s annual GDP increased almost six times to 11.5 percent. The MOF, MITI and the Economic Planning Agency’s (EPA) policies were considered to be the drivers of this rapid economic growth. Nevertheless, it is difficult to quantify the extent to which ministerial policy actually drove the economy. Besides SCAP’s ‘reverse reforms’ other factors should also be considered:
Joseph Dodge, the chairman of Detroit Bank, was SCAP’s economic adviser who planned policies to stabilize Japan’s economy. Known as the Dodge Line, the yen was set at the cheap rate of ¥360 per dollar to assist Japanese exports and to promote Japan’s economic revitalization.
Mercantile policies.
America’s open markets.
Access to cheap technologies, especially from the US.
Prime Minister Hayato Ikeda (1960–64) whose ‘double income’ economic policies focused on the development of the heavy industries as opposed to small businesses.
Low military spending (Yoshida Doctrine).
High savings rate.
Consistent support for policies from the National Diet and business community.
Industriousness of a literate workforce.
Susan Carpenter

3. The Route to Heaven-on-Earth

Amakudari (‘decent from heaven’) is a primary component in Japan Inc. Amakudari began informally during the 1930s when the government started to strictly regulate the economy for the war effort. Business owners employed bureaucrats in order to determine future government directives as well as to lobby interests. It was widely believed in the 1970s and 1980s that the interlocking relationship between business, the bureaucracy and politicians was the secret to Japan’s success in global markets. The system seemed to work well while Japan was emerging industrially. However, what was not generally recognized was how the interlocking relationships created a mutuality of vested interests of the stakeholders, a very insular environment that protected domestic businesses from foreign competition and a rigid system of ministerial administration of the economy, a model that would consequently impede the efforts by successive administrations since the 1990s to implement structural reforms. Although the practice has been regarded as encouraging corruption and sloppy regulation, it was not until the beginning of the 1990s after the asset-inflated bubble burst and scandals emerged involving amakudari and the ministries’ collusion with companies in their administrative jurisdiction that amakudari was no longer condoned.
Susan Carpenter

4. Pork-Barrel Politics in the Prefectures: The Winners

In 1982 Chalmers Johnson stated in his best-seller MITI and the Japanese Miracle:
Most of the ideas for economic growth came from the bureaucracy and the business community reacted with the attitude of what one scholar called ‘responsive dependence’.1
Susan Carpenter

5. The Japanese Economic Miracle: Japan Inc. on Center Stage

The United States’ open markets to Japanese imports and the continuation of the favorable exchange rates put Japanese producers on an even playing field with their American rivals. By the mid-1970s the Japanese automobile industry was taking full advantage of the oil shock and, hot on the heels of Chrysler and GM, aggressively pursued American consumers who were beginning to appreciate the fuel-efficient engines as well as the lower prices. Honda first entered the American market via its motorcycles, which proved to be very competitive with the heavier Harley-Davidson. German car manufactures also benefited with sturdy and reliable fuel-efficient Volkswagens and Audis.
Susan Carpenter

6. The Roaring 80s: The Bicycle Economy Out of Control

In 1988, Tokyo was a capital of opulence and reminiscent of the Roaring Twenties and the 1929 stock market crash. Clearly, Japan’s economy was over-heated. Famous designer-brand boutiques were installed in every department store. The large trading companies, in league with the retailers, imported apparel and leather goods. Despite prices that were far more expensive than in the country of origin, shoppers were willing to spend hard-earned income on famous brand names. To promote their brands as synonymous with imported luxury goods Japanese designers priced their apparel at almost the same rates as their foreign competitors.
Susan Carpenter

7. The Metamorphosis of Sanraku Inc.

Sanraku Inc. was formerly known as Showa Brewery, established by the Ajinomoto Corporation in 1934. In 1935 Showa began to produce alcohol and in 1946, shochu, a popular Japanese distilled spirit made from sweet potato or rice with 25 percent alcohol content by volume. In 1961 Showa Brewery purchased Mercian Winery and then merged in 1962 with Nisshin Brewery to purchase Ocean Co., a whisky producer.
Susan Carpenter

8. The Martini, Glenfiddich and Babycham Marathons

Louis Martini Vineyards was one of Napa Valley’s oldest and most revered family-owned wineries that had been established in 1933 in anticipation of the end of Prohibition. Well-recognized for its Cabernet Sauvignon, the winery owned over 900 acres of premium vineyards in the Napa-Sonoma Valley. Louis Martini was reputed to be among the finest of California wine makers. The winery is a popular tourist attraction with daily wine tours and tastings. Coincidently, Markham Vineyards is located directly across the road from the Martini Vineyards whose wines were already in Sanraku’s portfolio when Markham was purchased.
Susan Carpenter

9. Marketing and Advertising Strategies: What’s it all About?

Suntory was an entirely different animal to Sanraku. Since the 1890s Suntory’s core competence had been alcoholic and non-alcoholic beverages and later foods and some pharmaceuticals. The company is owned by the Torii family who established their winery in 1899. Suntory built Japan’s first whisky distillery in 1923 and is considered Japan’s finest whisky producer. In 1963, although Suntory entered the beer brewing industry as a latecomer, initially producing a draught beer in 1967, the company quickly became recognized as a major contender in the competitive beer market. Suntory also has a line of non-alcoholic beverages. In 1984 it engaged in a third-party venture with the premium ice cream producer Häagan-Dazs, one of its numerous joint ventures with foreign producers in the food and beverage industry. In 1985 Suntory entered a partnership with Château Lafite Rothschild and also purchased Château Lagrange and over 50 percent of Château Beychevelle. Suntory Vineyards and research center are located in Yamanashi Prefecture where the other large Japanese wine producers’ vineyards are located. Suntory’s wine is said to be made from their domestically cultivated grapes.
Susan Carpenter

10. Bubble, Bubble, Turmoil and Trouble

The year 1988 saw the beginning of a rash of political scandals that served to unhinge Japan’s political system because of the involvement of numerous high-ranking members in the LDP and elite civil servants. The Recruit scandal hit the front pages of the major dailies. The massive insider trading and corruption scandal that brought down Prime Minister Noboru Takeshita’s entire administration, the resignation from office by many key politicians, and the arrest and indictment of powerful businessmen are pertinent examples of collusion between cross-party ultra-conservative politicians, bureaucrats and big business and of money politics during Japan’s post-war period. The Recruit scandal, involving 155 prominent figures, was regarded as the most pervasive of all time and much bigger than the Lockheed scandal. It was also credited with spurring the defection of members of the LDP to form the New Japan Party in 1992 and Morihiro Hosokawa’s installation as prime minister in August 1993.
Susan Carpenter

11. Special Corporations: Insatiable

When SCAP permitted the formation of a public corporation to support the development of the match industry, representatives, fearing tight controls over their sector, issued a petition on August 10, 1947 to SCAP in protest. The protest claimed that the corporation was being formed not to support the industry but to provide jobs for bureaucrats. SCAP rejected the petition because it assumed that the industry did not want ministerial controls. Later reflecting on its decision, SCAP believed that public corporations could resuscitate Japan’s war-time system of autocratic controls.
Susan Carpenter

12. The Skill at Disguising

An In-depth Research of the Bureaucracy (Kanryou Dai Kenkyuu) by Tetsuo Ebato was published in 1990. Ebato graduated with a degree in economics from Tokyo University before entering Mitsui Bank. He left the company to become a freelance writer. His book regards the Defense Agency, the Supreme Court, the former Ministry of Health and Welfare, the Ministry of Agriculture and Fisheries and MITI.
Susan Carpenter

13. The Price of Pork-Barrel Patronage: Beggars Can’t be Choosers

In 2001, although 53 percent of the Niigata electorate voted against the use of mixed oxide fuel (MOX) METI refused to budge on its long-term objectives for the use of MOX and fast breeder reactors and began looking for other prefectures to build pluthermal plants. Ehime Prefecture was fair game because there was already a nuclear power plant hosted by the small fishing village of Ikata, which is located on Japan’s narrowest peninsula and the westernmost point of Shikoku, Japan’s fourth largest island. Its industry is limited to fishing and citrus farming. The mountainous terrain prevents urban development but the substantial investment from the nuclear industry has supported infrastructure and tourism. Ikata Nuclear Power Plant is Shikoku’s only nuclear installation and provides much of the islands’ electricity. No. 1 reactor, built by Mitsubishi Heavy Industries, began commercial operation in September 1977. No. 2 reactor was commissioned in 1982. No. 3 reactor, which is partially loaded with MOX, began operations in March 2010 and was built jointly by Mitsubishi and Westinghouse.
Susan Carpenter

14. Still Bubbling

After the bursting of the inflated real estate bubble in 1990 the weaker non-bank financial institutions such as leasing companies and credit associations began to fail. In addition some regional banks also failed. These institutions were closely connected to the large city banks because deposits in the city banks were used to finance loans to clients of local banks. The MOF pressured the metropolitan banks to bail out the banks that were in distress. For example, four major city banks were forced to take over the collapsing Taiheiyo Bank and the Tokai Bank acquired the failing Sanwa Shinkyo Ginko.
Susan Carpenter

Conclusion: The Third Lost Decade?

Abe’s brew of reckless monetary policies combined with a revved-up version of tired fiscal policies mixed with a good dose of neo-nationalism may prove disastrous. Why Japan Can’t Reform detailed the brief administrations of Prime Ministers Abe, Fukuda and Aso (2006–9) in their attempts to drag Japan’s floundering economy out of deflation, to lower public debt and to initiate institutional reforms. However, their administrations were plagued by political scandals and factional bickering and initiatives for structural reforms were postponed.
Susan Carpenter


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